The Heroes Are Really Zeroes in HBO's Too Big To Fail

HBO's Too Big To Fail -- I just caught up with it last night, thanks to HBO On Demand -- is extraordinarily revealing about the financial crisis. Only its revelations are almost entirely inadvertent.

The movie is set up in the Hollywood conventional way: A gang of misfits, each with a special expertise, is brought together for an impossible mission. There's Treasury Secretary Henry Paulson, steely eyed at the moment of truth. There's New York Federal Reserve head Timothy Geithner, the athlete (he doesn't just jog, but also plays what appears to be squash). And then there's Federal Reserve chairman Ben Bernanke, the professor with a heart of gold and secret knowledge of the Great Depression.

Ostensibly it's a story of their success against all odds. Michael Kinsley, reviewing the movie in the New York Times, labeled Hank Paulson [1] the "hero" of the account.

Except that the movie actually depicts something entirely different: failure upon failure. Too Big To Fail the movie isn't the story of how the Three Musketeers saved the global economy. It's a story of how the three didn't see the financial crisis coming; hadn't prepared for it; made mistake after mistake as it was cresting; and then, in their moment of triumph, made their most colossal blunder of all.

That, it turns out (whether or not Too Big To Fail knows it), is the true story of the financial crisis.

How much did Curtis Hanson and the writers mean for that to be the story? Throughout, the characters drop hints about their missteps, but the plot unfolds like a financial "Die Hard," with our intrepid heroes battling fiendishly powerful forces toward a happy ending. (Full disclosure in this era of transparency: I write a regular column [2] for DealBook, the New York Times section edited by Andrew Ross Sorkin, the reporter upon whose book [3] the movie was based.)

Early on, Paulson complains to his staff that they have been behind on everything as the crisis began to emerge. And that's true! The crisis actually started in the late summer of 2007 [4]. Paulson's first effort, late that year, was to get a bunch of banks to assemble a giant off-balance-sheet concoction [5] that would save each individual bank's off-balance-sheet monstrosity. It was a complete flop.

In the movie, as bankers and government officials frantically try to save Lehman, Chris Flowers, the private equity investor and banking impresario, is depicted as informing Paulson and Geithner that AIG is teetering on the edge. In their fumbled response, he immediately grasps the truth. "They're not on top of it," he tells a confederate.

And they weren't. In real life, AIG had been struggling since the middle of 2007. Paulson and Geithner [6] of course had some inkling of the problems [7] at the world's largest insurer. But they didn't prepare for it.

In the movie, the chief executive of General Electric, Jeff Immelt, places a terrified call to Paulson [8] saying that GE can't borrow. GE is standing in for every Real American manufacturing company. We are reminded it makes light bulbs and washing machines. Paulson is shocked that such a stalwart could be having trouble borrowing.

The reality, of course, is that GE was more a finance company than a manufacturer and was teetering because it financed those operations with billions of short-term borrowing. It is also true that Paulson, Bernanke and Geithner had no inkling of GE's troubles until the very last moment and therefore had no plan to deal with it.

Plans are, in the movie, almost nonexistent. The team of heroes races from crisis to crisis, as Bond goes from chase scene to babe, eventually stumbling on the evil SPECTRE [9] plot to take over the world. Intentionally or not, the movie is echoing real life.

Despite warning signs [10], Paulson, Geithner and Bernanke had no evident plans throughout the last half of 2007 and the first eight months of 2008. Not for how to resolve Lehman after Bear Stearns' collapse, not for AIG, not for recapitalizing the banking system.

Indeed, they asked Congress for $700 billion to implement the Troubled Asset Relief Plan [11] to buy toxic assets from the banks, and then, without any further discussion, abandoned that idea and injected capital into the banks. Many economists [12] and financial experts had been urging them to do just that, but when they finally hit on that as a solution, it was so poorly thought out that they gave the money to the banks on overly generous terms.

This moment is depicted at the end of the movie, and because it is both a triumph in the conventional narrative sense, but also a major mistake by our heroes, it is the point at which the movie is most cognitively dissonant. Paulson, Bernanke and Geithner have finally come to their solution: Put capital in the banks. They gather outside the boardroom where they are going to confront the CEOs.

For purposes of dramatic tension, we have to see their nervousness that the deal won't go through. The Treasury secretary and the two most powerful central bankers in the country are about rescue these CEOs and their institutions from their own recklessness, yet they cower in fear of rejection.

Of course, this rings true because the government drove awful bargains. In the aftermath of the greatest credit bubble in history, it protected creditors at almost every turn. The government gave the banks money but didn't get voting rights and didn't prevent the banks from using the money to pay dividends or bonuses. They wrote what was essentially a blank check. In real life, Warren Buffett got much better terms [13] when he invested in Goldman Sachs.

What is the audience to make of these scenes? Paulson, our supposed hero, insists that if the government puts any restrictions on the money, "They won't take it!"

It's left to the hapless PR woman, played by Cynthia Nixon (who has, moments earlier, had the crisis explained to her in words of one syllable for the sake of her, and the audience's, simple minds), to wonder why, if the government is saving these institutions, it couldn't impose any limits on how the money be used.

The banks do take the money, of course. They have no choice by the conventions of Hollywood. Nor did they in real life, something that the Three Musketeers never fully appreciated.

After the scene, the Big Three gather in a room, relieved, and Bernanke asks, "They will lend the money out, won't they?" The director, Curtis Hanson, focuses in on Paulson, who gazes out the window, as if contemplating the question for the first time. He insists they will. But an unmistakable moment of doubt passes across his face.

Fade to the postscript. There we learn that, whoops, the banks didn't lend it out after all. Instead, they got bigger, banker bonuses recovered, and Wall Street is getting bottle service at velvet-roped clubs all over again. The world was saved from ruin, but the banks quickly went back to business as usual and even felt self-righteous about it.